This week Standard & Poor's provoked what amounted to a non-event when it lowered its outlook on the U.S. debt from “stable” to “negative,” based on its expectation that Congress isn't going to reach a meaningful compromise on deficit reduction in the near future. The downgrade came just days after the Senate subcommittee on Investigations released its massive report on the causes and villains of the financial crisis. The report indicted S&P, along with Moody’s, for keeping the credit ratings of mortgage-backed securities and collateralized-debt obligations artificially high, then sharply lowering them when the foreclosure rate began to skyrocket in 2007. It explains:
It was not in the short term economic interest of either Moody's or S&P, however, to provide accurate credit ratings for high risk RMBS and CDO securities, because doing so would have hurt their own revenues… In the end, Moody's and S&P provided AAA ratings to tens of thousands of high risk RMBS and CDO securities and then, when those products began to incur losses, issued mass downgrades that shocked the financial markets, hammered the value of the mortgage related securities, and helped trigger the financial crisis.
With such a public shaming, it's hard not to wonder if there's an element of retribution in S&P's downgrade. It also came just after President Obama’s speech last week on the need to put everything, including tax increases for top earners like the forecasters at S&P, on the table to reduce the deficit.
Whether it was retribution or politics, S&P Chief Economist David Wyss made it clear yesterday during a Washington Post live chat that he cares less about the deficit than doing away with the entitlement programs that are supposedly bankrupting our nation. Medicare is the “major” problem, he says, as Social Security can be fixed with a few tweaks.
15% of Americans work in the health care sector, and politicians don't want to tell them that there will be fewer jobs or lower wages and profits. We haven't yet come to terms with the issue of whether health care is a right or a market good like any other. Until we do, cost control is not going to work.
Reading his responses, you'd never believe Congress spent the better part of 2009 arguing over health care and concluded, much to the chagrin of Republicans like Paul Ryan, that health care is indeed a right and that programs like Medicare should be preserved. You’d also be forgiven for believing Congress hadn’t concluded the debate by passing an act that contains health costs better than anything proposed by the GOP, cutting $230 billion from the deficit in the next decade.
In Wyss' defense, he admits that tax increases will probably also be needed to curb the deficit, but based on public reception of certain other deficit-reduction plans, he probably realizes you can’t ask the public to give up Medicare without at least paying lip service to shared sacrifice from the wealthy.
